Samsung C&T on Sunday rebuffed a report by global shareholder adviser Institutional Shareholder Services that recommended its shareholders to oppose the proposed merger with Cheil Industries, the de facto holding company of Samsung Group.

Samsung’s construction and trading unit said it was concerned that the report would mislead investors.

“Despite the projection of a 22.6 percent stock plunge in the case of a merger failure, the ISS report recommended Samsung C&T shareholders to vote against the merger plan, saying the prices could rebound in the future without giving reasonable and objective explanations of the upward trend,” the company said in a statement. 

The builder’s statement also pointed out that the ISS overvalued Samsung C&T in its report.

“It recommended the stock swap ratio between shares of Cheil Industries and Samsung C&T stock should be 1:0.95 (based on value of assets of the two companies), but the ratio is unrealistic,” it said.

The ISS-proposed ratio is far higher than the 1:0.35 that Samsung proposed while announcing the $8 billion merger deal between its two units for business synergies in May.

“ISS admitted that the merger ratio was decided in line with Korean regulations (on the basis of the stock value). It doesn’t make sense for it to claim the figure was unfair based on equity values,” the company added.

Samsung attacked the claim that the value of Cheil Industries was overvalued, saying that the ISS report severely discounted the future value of Cheil’s new bio business.

“ISS didn’t consider improved shareholder returns and a better corporate governance structure for the post-merger company that were also touted during Cheil Industries’ recent investor relations session,” Samsung C&T said.

The ISS recommendation comes amid a court battle between Samsung C&T and Elliott ahead of a July 17 shareholder vote on the merger plan.

The merger is considered a crucial move as part of a smooth leadership transition at the nation’s largest conglomerate from the ailing Samsung patriarch Lee Kun-hee to his son, Samsung Electronics vice chairman Jay-yong.

Samsung announced the merger plan in June, citing huge business synergies for the new combined entity. But Elliott, in a rare feat of shareholder activism in Korea, is lobbying foreign institutional shareholders and minority investors to vote down the deal, asking the Samsung management to elevate the merger ratio.

Samsung seemed to have an upper hand last week after a Seoul court rejected Elliott’s injunction to stop the shareholder vote.

But the merger deal ran into fresh opposition as ISS joined another major proxy adviser, Glass Lewis & Co., in rejecting the deal and siding with Elliott’s campaign to block it.

Industry watchers said the ISS report could affect the decision of foreign investors in Samsung C&T, while most domestic institutional shareholders are likely to vote in favor of the merger, as they hold shares in both Samsung companies.

In order for the merger plan to be approved, Samsung needs to secure a combined 47 percent of shares in its favor, while Elliott needs some 23 percent shares to block the deal.

Amid the intense proxy battle, the National Pension Service, the largest shareholder of Samsung C&T with an 11.21 percent stake, is expected to play a key role in the upcoming vote. The pension fund plans to decide its stance this week. 

By Lee Ji-yoon
(jylee@heraldcorp.com)